Offshore deepwater drilling contractor Seadrill has seen a boost in its income during the fourth quarter of 2015, but a drop in revenues both year over year, and sequentially due to idle rigs.
In the company’s fourth quarter 2015 results report on Thursday, Seadrill reported net income attributable to the parent of $285 million, compared to $157 million in the prior-year quarter.
Seadrill’s revenue for the fourth quarter of 2015 amounted to $959 million, a 24% drop compared to $1.3 billion a year earlier. Sequentially, Seadrill’s revenues dropped by 2.6% primarily due to additional idle units:
– The West Venture was idle for the entire quarter; – The West Phoenix was stacked during the winter period at the customers request; – The Sevan Driller contract was suspended effective December 1, 2015 while commercial negotiations are ongoing; – The West Telesto completed its contract in November.
The reductions to revenue were partially offset by higher utilization across the remaining floaters in operation.
During 2015, the group achieved $832 million in cash savings primarily by reducing or postponing spending in operating expense, G&A and capex.
Approximately one quarter of the $832 million represents reductions in operating costs across the group coming from headcount reductions, insurance savings, supplier discounts, travel costs and compensation adjustments which the company will continue to receive the benefit of in future years.
Workforce reductions
During the year total headcount reduced from 9,450 to 7,103, totalling in 2,347 of jobs cut. The reduction was comprised of 1,817 (24%) offshore and 530 (31%) onshore. The year end onshore total stood at 1,189 and the offshore total at 5,914.
According to the company, 35% of the cash savings program relates to to deferments in capex and long term maintenance as classing and maintenance is not performed on idle units. The company said it expects these expenditures to return when idle units come back into service.
The remaining 40% of the 2015 cash savings program relates to the deferment of newbuilds. While final yard installments are excluded from the company’s calculation, operation preparations and other progress payments that would have been incurred had the company taken delivery on the original schedule are included.
Contracting at lowest levels since 1980’s
In its report, Seadrill stated that the offshore drilling market continues to be oversupplied with multiple drilling rigs chasing the few opportunities that are available. Contracting activity is at the lowest levels since the 1980’s. Oil company capital expenditures are expected to decline further in 2016, following two consecutive years of decline, said the drilling contractor.
Seadrill said it continues to believe that the majority of rigs with contracts expiring in 2016 will be unable to find suitable follow on work, many are likely to be idle for a protracted period and consequently cold stacking and scrapping activity will accelerate.
Oil companies continue to work on managing their existing rig capacity. They are in many cases overcommitted based on reduced activity levels and, Seadrill said, there is very little appetite for adding new units. Near term budgetary constraints are the primary focus of many of the company’s customers, with short term cash conservation ranking ahead of long term value generation.
However, the near term cost cutting needed to support dividend payments can be expected to negatively impact the long term production profiles of existing development projects.
Although the industry fundamentals are currently subdued, Seadrill said it is positive on the long term outlook for the industry and the company. At today’s oil prices the full cycle cost of many of the hydrocarbon provinces globally are uneconomic. A supply response is inevitable, however, Seadrill said, it may take some time due to the high degree of sunk costs in producing projects.
“When also considering the eventual demand response to low prices we can expect to see a rebalancing in the oil markets,” Seadrill noted.
Offshore oil fields represent a material portion of most major oil company’s reserves and their production remains a cost competitive source of hydrocarbons.
“When the cycle turns we see a strong future for Seadrill’s modern, high specification fleet and highly regarded operational track record,” the drilling contractor concluded.
Offshore Energy Today Staff